Company Reports

Intron Technology’s first-half 2024 results showed continued strong revenue growth of 8%, driven by electric vehicles, automated vehicles, and cloud servers. However, intense competition among its automaker customers put pressure on Intron’s gross margin, which contracted to 15.9% from 20.6% in the first half of 2023, leading to a 37% decline in net profit. We lower our fair value estimate for Intron to HKD 3.40 per share from HKD 4.60 following the results, due to a combination of reduced revenue and gross margin forecasts. We have lowered our 2024 gross margin assumption to 16% from 18% previously and our long-term gross margin to 17.5%, from 19% before. Despite this, the stock trades at about a 60% discount to our fair value, which, combined with our Very High Morningstar Uncertainty Rating, drives a 5-star rating as of Aug. 28, 2024. Based on our estimates, Intron trades on a 2024 price/earnings ratio of 5.6 times and would trade on 15 times at our fair value, which we believe is fair, given the forecast growth. We also retain our narrow moat rating due to its solid reputation and strong customer relationships in supplying electronics to auto original equipment manufacturers, or OEMs, who have historically been reluctant to change reliable suppliers.

Intron provides design services and solutions for Chinese auto electronics and has around 50% market share in the areas that it specializes in. Electronics for new energy vehicles and automated vehicles currently contribute around 60% of its revenue and we see long runways for growth for both of these segments. The company grew very strongly over 2015-19, slowing only in 2020 as the number of new energy vehicles sold in China declined due to a reduction in government rebates on those vehicles, and the impact of the coronavirus pandemic. However, the demand reduction was short-lived, with a 90% increase in new energy vehicle sales in China in 2022 and a further 21% forecast in 2024 by the China Association of Automobile Manufacturers. We forecast high-teens growth thereafter until 2026. Intron looks well placed to benefit from a strongly growing end market for its products and services. The further proliferation of electronics into future cars, particularly in advanced driver-assistance system and eventually autonomous driving, provides further growth opportunities for Intron.

Intron Technology’s 2023 result showed continued strong revenue growth of 20%, driven by electric vehicles and automated vehicles, with Intron’s second-half revenue growth of 15% year on year still impressive. However, several factors, including pressure on gross margins and a large increase in research and development costs and interest expenses meant this strong revenue growth was not reflected in net profit, which fell by 24% on a full-year basis. The 2023 dividend declined to HKD 9.8 cents per share from HKD 13.1 cents per share in 2022, with the dividend payout ratio of 30% remaining constant. We retain our view that a dividend is unnecessary for this company, given the high growth nature of the business driving cash flow concerns. We lower our fair value estimate to HKD 4.60 per share from HKD 6.70 following the result, due to reduced revenue and gross margin forecasts.

Intron provides design services and solutions for Chinese auto electronics and has around 50% market share in the areas that it specializes in. Electronics for new energy vehicles and automated vehicles currently contribute around 55% of its revenue and we see long runways for growth for both of these segments. The company grew very strongly over 2015-19, slowing only in 2020 as the number of new energy vehicles sold in China declined due to a reduction in government rebates on those vehicles, and the impact of the coronavirus pandemic. However, the demand reduction was short-lived, with a 90% increase in new energy vehicle sales in China in 2022 and a further 21% forecast in 2024 by the China Association of Automobile Manufacturers. We forecast high-teens growth thereafter until 2026. Intron looks well placed to benefit from a strongly growing end market for its products and services. The further proliferation of electronics into future cars, particularly in advanced driver-assistance system and eventually autonomous driving, provides further growth opportunities for Intron.

Intron provides design services and solutions for Chinese auto electronics and has around 50% market share in the areas that it specializes in. Electronics for new energy vehicles and automated vehicles currently contribute around 55% of its revenue and we see long runways for growth for both of these segments. The company grew very strongly over 2015-19, slowing only in 2020 as the number of new energy vehicles sold in China declined due to a reduction in government rebates on those vehicles, and the impact of the coronavirus pandemic. However, the demand reduction was short-lived, with a 90% increase in new energy vehicle sales in China in 2022 and a further 35% forecast in 2023 by the China Association of Automobile Manufacturers. We forecast high-teens growth thereafter until 2025. Intron looks well placed to benefit from a strongly growing end market for its products and services. The further proliferation of electronics into future cars, particularly in advanced driver-assistance system and eventually autonomous driving, provides further growth opportunities for Intron.

Intron Technology’s share price has fallen by around 58% over the past six months and we believe this provides a good opportunity for entry into the stock given it trades on a 2024 price/earnings ratio of less than 5 times and the company retains its leverage to long-term growth of the electric vehicle and autonomous driving markets. The price performance of Intron over this period was worse than the 13% decline in the Hang Seng China A Automobiles Index over the same period and we believe this reflects Intron’s lower year-on-year net profit growth in first-half 2023 of 1.2%, despite revenue growing 27%. This was mainly due to Intron’s research and development expenses increasing 59% year on year in the first half, accounting for 8.9% of total revenue, up from 7% of total revenue in the first half of 2022. We expect Intron to spend around 7% of revenue on R&D in the medium term, broadly in line with its historical spending.

Intron provides design services and solutions for Chinese auto electronics and has around 50% market share in the areas that it specializes in. Electronics for new energy vehicles and automated vehicles currently contribute around 55% of its revenue and we see long runways for growth for both of these segments. The company grew very strongly over 2015-19 slowing only in 2020 with the decline in the number of new energy vehicles sold in China declined due to a reduction in government rebates on those vehicles, and the impact of the COVID-19 pandemic. However, the demand reduction was short-lived, with a 90% increase in new energy vehicle sales in China in 2022 and a further 35% forecast in 2023 by the China Association of Automobile Manufacturers. We forecast high-teens growth thereafter until 2025. Intron looks well placed to benefit from a strongly growing end market for its products and services. The further proliferation of electronics into future cars, particularly in advanced driver-assistance system and eventually autonomous driving, provides further growth opportunities for Intron.

Intron Technology’s first-half 2023 result showed very strong revenue growth of 27% driven by strong growth from electric vehicles and automated vehicles. However, several factors, including a large increase in research and development costs and interest expenses meant this strong revenue growth was not reflected in net profit, which grew only 1.2%. Electric vehicles and automated vehicles contributed 55% of Intron’s revenue in the first half and we see a long growth runway for them. We expect unit growth for new energy vehicles in China of around 35% in 2023 and high-teens growth until 2025, and we expect Intron may be able to take market share at above this rate. Intron continued to invest in R&D in the first half with R&D expenses up 59% accounting for 8.9% of total revenue, up from 7% of total revenue in the first half of 2022. We expect Intron to spend around 7% of revenue on R&D in the medium term, broadly in line with its historical spending. Interest expense also increased to CNY 46.8 million in the first half of 2023 from CNY 15.7 million in the first half of 2022 due to increases in both debt and interest rates. The company is increasing its CNY-denominated debt, with the interest rate for this debt nearly half that of the interest rate on its USD-denominated debt.

Intron Technology’s 2022 result was driven by strong growth in revenue from electric vehicles, or EVs, and automated vehicles, with consolidated revenue up 52% and net profit up 107%. Together, these two categories made up 52% of Intron’s revenue in the second half and we see a long growth runway for them. We expect unit growth of new energy vehicles in China of 30%-35% in 2023 and high teens growth until 2025, and Intron would grow faster through taking market share. Intron continued to invest in research and development in 2022, with R&D expenses up 61%, accounting for 6.9% of total revenue, up from 6.5% in 2021. Being the largest distributor of Infineon chips in China has helped Intron gain customer market share in times of chip shortages, as we have seen over the past 18 months, particularly with original equipment manufacturers. We increase our fair value estimate to HKD 8.20 from HKD 7.50 per share previously, following the result. The stock trades at around a 44% discount to our fair value, which combined with our Very High Morningstar Uncertainty Rating, drives a 4-star rating as of March 28, 2023. We also retain our narrow moat rating due to its solid reputation and strong customer relationships in supplying electronics to auto original equipment manufacturers, who have historically been reluctant to change reliable suppliers. The moat rating is supported by its return on invested capital, which has historically been well over its cost of capital except for the COVID-19-affected 2020, and we expect above-cost-of-capital returns over our forecast period.

Intron provides design services and solutions for Chinese auto electronics and has around 50% market share in the areas that it specializes in. Electronics for new energy vehicles currently contribute around 46% of its revenue. The company grew very strongly over 2015-19 but the number of new energy vehicles, or NEVs, sold in China declined in the second half of 2019 as a reduction in government rebates on those vehicles hit demand from the middle of the year. The pandemic in 2020 also hit demand. However, the demand reduction was short-lived, with a 90% increase in new energy vehicle sales in China in 2022 and a further 35% forecast in 2023 by the China Association of Automobile Manufacturers. We forecast high-teens growth thereafter until 2025. Intron looks well placed to benefit from a strongly growing end market for its products and services. The further proliferation of electronics into future cars, particularly in advanced driver-assistance system and eventually autonomous driving, provides further growth opportunities for Intron.

Intron Technology’s first-half 2022 result was driven by strong growth in revenue from electric vehicles and automated vehicles with total revenue up 57% and net profit up 140%. Together, these two categories made up 43% of Intron’s revenue and we see a long growth runway for them. Being the largest distributor of Infineon chips in China has helped Intron gain customer market share in times of chip shortages as we have seen over the past year, particularly with original equipment manufacturers. The company expects chip shortages to continue until mid-2023. The company issued a positive profit warning prior to the result, at which time we raised our fair value estimate to HKD 7.50. We retain our fair value estimate following the result. The stock price traded down around 25% over the past month and it is now trading at around 30% discount to our fair value estimate, which combined with our Very High Morningstar Uncertainty Rating drives a 4-star rating as at Sept. 1. We also retain our narrow moat rating due to its solid reputation and strong customer relationships in supplying electronics to auto OEMs, who have historically been reluctant to change reliable suppliers. The moat rating is supported by Intron's return on invested capital, which has historically been well over its cost of capital, except for coronavirus-hit 2020, and we expect above-cost of capital returns over our forecast period.

Intron provides design services and solutions for Chinese auto electronics and has around 50% market share in the areas that it specializes in. Electronics for new energy vehicles currently contribute to around half of its revenue. The company grew very strongly over 2015-19 but the number of new energy vehicles, or NEVs, sold in China declined in the second half of 2019 as a reduction in government rebates on those vehicles hit demand from the middle of the year. The pandemic in the first half of 2020 also hit demand. We expect the demand reduction to be short-lived and expect the Chinese auto market to rebound to 5% average annual growth in the medium term and 27% per year growth for NEV sales from 2019 to 2030, implying growth from 1 million units per year to 14 million units per year over that period. Intron looks well placed to benefit from a strongly growing end market for its products and services. The further proliferation of electronics into future cars, particularly in advanced driver-assistance system and eventually autonomous driving, provides further growth opportunities for Intron.

Intron Technology has announced a positive profit alert for first-half 2022 with first-half net profit increasing at least 100% year on year and revenue increasing at least 50% year on year. The growth was attributed to new energy vehicle automotive electronics solutions with further details likely to be provided at the first-half results release on Aug. 31.

Intron provides design services and solutions for Chinese auto electronics and has around 50% market share in the areas that it specializes in. Electronics for new energy vehicles currently contribute to around half of its revenue. The company grew very strongly over 2015-19 but the number of NEVs sold in China declined in the second half of 2019 as a reduction in government rebates on those vehicles hit demand from the middle of the year. The pandemic in the first half of 2020 also hit demand. We expect the demand reduction to be short-lived and expect the Chinese auto market to rebound to 5% average annual growth in the medium term and 27% per year growth for NEV sales from 2019 to 2030, implying growth from 1 million units per year to 14 million units per year over that period. Intron looks well placed to benefit from a strongly growing end market for its products and services. The further proliferation of electronics into future cars, particularly in advanced driver-assistance system and eventually autonomous driving, provides further growth opportunities for Intron.

Intron Technology reported a strong 2021 result with revenue up 59% to CNY 3.2 billion and net profit up 111% to CNY 200 million. Revenue growth was driven by new energy vehicle solutions, which reported 132% growth, but all key revenue lines reported at least 18% growth. Intron has been able to secure good semiconductor supply during a time of industry shortage, which has helped it gain market share and improve relationships with existing customers. This was done using its strong relationship with chip supplier Infineon, as Intron is Infineon’s largest regional customer. However, the company now procures around 75% of its semiconductor supplies from Infineon (down from 80% previously) as it has also added other suppliers such as Horizon. Intron’s exposure to new energy vehicles continues to grow, with NEV sales representing 38% of second-half 2021 revenue, up from 29% in the first half of 2021. The China Association of Automobile Manufacturers forecasts Chinese vehicle sales to increase 5% in 2022 with passenger vehicle sales expected to grow 7% and new energy vehicle sales expected to grow 42%. The government had set a target for electric vehicles to account for 20% of Chinese auto sales by 2025, up from 5.4% in 2020; however, CAAM now estimates that this target might even be reached in 2022.

Intron provides design services and solutions for Chinese auto electronics and has around 50% market share in the areas that it specializes in. Electronics for new energy vehicles currently contribute to around half of its revenue. The company grew very strongly over 2015-19 but the number of NEVs sold in China declined in the second half of 2019 as a reduction in government rebates on those vehicles hit demand from the middle of the year. The pandemic in the first half of 2020 also hit demand. We expect the demand reduction to be short-lived and expect the Chinese auto market to rebound to 5% average annual growth in the medium term and 27% per year growth for NEV sales from 2021 to 2030. Intron looks well placed to benefit from a strongly growing end market for its products and services. The further proliferation of electronics into future cars, particularly in advanced driver-assistance system and eventually autonomous driving, provides further growth opportunities for Intron.

Intron provides design services and solutions for Chinese auto electronics and has around 50% market share in the areas that it specializes in. Electronics for new energy vehicles currently contribute to around half of its revenue. The company grew very strongly over 2015-19 but the number of NEVs sold in China declined in the second half of 2019 as a reduction in government rebates on those vehicles hit demand from the middle of the year. The pandemic in the first half of 2020 also hit demand. We expect the demand reduction to be short-lived and expect the Chinese auto market to rebound to 5% average annual growth in the medium term and 27% per year growth for NEV sales from 2019 to 2030, implying growth from 1 million units per year to 14 million units per year over that period. Intron looks well placed to benefit from a strongly growing end market for its products and services. The further proliferation of electronics into future cars, particularly in advanced driver-assistance system and eventually autonomous driving, provides further growth opportunities for Intron.

Intron Technology reported first-half revenue up 53% to CNY 1,321 million with net profit up 20% to CNY 95 million. Revenue growth was driven by new energy vehicle solutions, which reported 179% growth. Intron has been able to secure good semiconductor supply during a time of industry shortage, which has helped it gain market share and improve relationships with existing customers. This was done using its strong relationship with chip supplier, Infineon, where Intron is Infineon’s largest regional customer. Revenue growth is on the back of 201% growth in new energy vehicle unit sales in China during first-half 2021 with overall car sales up 25.60%, and these growth rates benefitting from the weak first-quarter 2020 due to coronavirus. Sales of new energy vehicles in China in July were up 164% with overall car sales down 12%. Intron is mainly exposed to local brands, which have gained market share in 2021 so the market conditions for Intron were even better. The government has set a target for electric vehicles, or EVs, to account for 20% of Chinese auto sales by 2025, up from 5.40% in 2020 and forecasts 5.30 million EVs to be sold in 2025, implying a five-year CAGR of 31%. Profit growth was weaker than revenue growth due to a 68% increase in research and development, or R&D, spending to CNY 97.30 million, with other administrative expenses increasing only 27%. We see the higher R&D expense as positive for the company’s potential future growth.

Intron provides design services and solutions for Chinese auto electronics and has around 50% market share in the areas that it specializes in. Electronics for new energy vehicles currently contribute to around half of its revenue. The company grew very strongly over 2015-19 but the number of NEVs sold in China declined in the second half of 2019 as a reduction in government rebates on those vehicles hit demand from the middle of the year. The pandemic in the first half of 2020 also hit demand. We expect the demand reduction to be short-lived and expect the Chinese auto market to rebound to 5% average annual growth in the medium term and 27% per year growth for NEV sales from 2019 to 2030, implying growth from 1 million units per year to 14 million units per year over that period. Intron looks well placed to benefit from a strongly growing end market for its products and services. The further proliferation of electronics into future cars, particularly in advanced driver-assistance system and eventually autonomous driving, provides further growth opportunities for Intron.

Intron Technology reported full-year revenue down 14% to CNY 1,993 million with net profit down 20% to CNY 95 million. The result included a foreign-exchange gain of CNY 28 billion so we estimate underlying profits were down around 41%. The second half was slightly better with a revenue decline of 7.3% compared with the 20.8% decline reported in the first half. The revenue declines are on the back of a 1.9% decline in total automotive unit sales in China over 2020 with new energy vehicle sales up 10.9%. Intron is mainly exposed to local brands, which also lost market share in 2020 so the impact on Intron was even higher. December Chinese auto sales were up 6.4% with new energy vehicle sales up 50%. Given sales to the new energy market contributed 44% of Intron’s revenue in 2019 and 29% in the second half of 2020, the outlook for this industry is important for Intron. The government has set a target for electric vehicles, or EVs, to account for 20% of Chinese auto sales by 2025, up from 5.4% in 2020 and is forecasting 5.3 million EVs to be sold in 2025 implying a five-year CAGR of 31%.